Market Liquidity & Volatility

To beginner traders, market liquidity and volatility could be threatening terms. Traders must learn and practice these terms before stepping foot into real-time financial markets. These terms, no doubt, are an active part of the trading regime.

The term liquidity means how rapidly, effortlessly, and proficiently something can be bought or sold in the markets. In contrast, volatility is the velocity at which a market’s price changes over a particular time. The volatility of markets is directly influenced by news and events. Liquidity can also affect a market’s level of instability, i.e., the insufficient buying and selling of a particular asset may fluctuate the market more rapidly. Financial markets are highly liquid and volatile. If liquidity determines the depth of the market, volatility determines the pace at which the changes happen.

Often in the festive season, late November and early January market volume dry up, indicating a ‘thin market’ or an illiquid market. The technical analysis is reliable when the markets are more liquid, but when the candles are wobbles, it reflects high volatile nature of markets.

Liquidity & Volatility in stocks